Contracting out local road and park services: economic effects and their strategic,contractual and competitive conditions

ABSTRACT

The economic rationale for contracting out local services is increasingly contested by empirical research. This article aims to contribute to this literature, first by scrutinising the economic effects of contracting out in local road and park services and, second, by exploring how characteristics such as markets, contracts, municipal strategies and contracting history influence these outcomes. Drawing on original survey data from Danish municipalities, we find that competitive tendering has on average reduced costs. Further analysis shows that savings are not associated with lower quality, thus indicating that ‘quality shading’ was not taking place. Another finding is that municipalities that repeatedly contract the services experience smaller savings, suggesting that competitive tendering is subject to declining marginal returns. Finally, we find that larger municipalities and those emphasising expenditure cuts realise larger savings, whereas the characteristics of markets and contracts do not seem to explain variations in cost savings.